For participants in franchise systems, exclusivity is fundamental. When a franchisee commits to a location, signs a long-term lease, and invests significant capital into building out a business, there’s an expectation of meaningful protection from nearby competition. Franchisors likewise rely on exclusivity and location controls to manage system growth, maintain brand integrity, and support franchise-wide performance.
In practice, exclusivity is reflected in franchise agreements that restrict where franchisees may operate, as well as in commercial leases or site approval provisions that limit competing uses or proximity to certain brands or formats. For many years, these arrangements were treated as standard commercial practice and rarely examined through a competition law lens.
Recent amendments to the Competition Act have changed how property controls are evaluated under Canadian competition law. While enforcement activity has focused on large retailers and grocery chains, the implications extend to franchise systems that rely on exclusivity when making business decisions.[1]
Why exclusivity clauses are under renewed scrutiny
The Competition Bureau (the “Bureau”) has indicated that property controls used by businesses with market power are now more vulnerable to challenge, particularly where they insulate a business from competition or make market entry more difficult for rivals.
Under the amended framework, it’s now easier for the Bureau to challenge exclusivity arrangements. Previously, enforcement generally required proof that a business both intended to restrict competition and actually lessened competition. The amendments allow the Bureau to intervene where either element is present.[2] As a result, exclusivity provisions that may have avoided scrutiny in the past could now attract regulatory attention and potential penalties.
How exclusivity operates in franchise systems
Exclusivity provisions in franchise systems are often embedded across multiple layers of contractual arrangements, which means the amendments may affect more than one relationship at a time.
Many franchisors enter into a lease with the landlord under a head lease and sublease the premises to the franchisee. This structure gives the franchisor control over the location and may allow it to negotiate exclusivity protections directly with the landlord. For instance, large grocery chains often serve as anchor tenants. Because they lease substantial space, commit to lengthy terms, and bring strong brand recognition, they frequently have the leverage to require exclusivity protections as part of their lease arrangements.
In other systems, franchisees lease directly from landlords but are required to enter into lease riders in favour of the franchisor. These riders protect the franchisor’s interests in the location and may grant rights tied to the premises, including exclusivity from competing concepts.
Even where franchisors are not party to the lease, they typically retain approval rights over location, proximity to other concepts, and surrounding uses. Franchise agreements also commonly assign geographic territories within which franchisees may operate or receive exclusivity from others in the same system.
What the Competition Bureau is focused on
The Bureau has indicated that property controls will be justified only in limited circumstances. Justification is most likely where a restriction serves a clear pro competitive purpose, such as supporting market entry or encouraging investment.[3]
In assessing justification, the Bureau considers whether a control is necessary to induce entry or investment, whether less restrictive alternatives exist, and whether its scope can be reduced in duration, geographic reach, or product coverage. Recent grocery sector enforcement illustrates this approach, with the Bureau examining whether property controls limited how real estate could be used or made it more difficult for competitors to open new stores.[4][5] [6]
While the absence of a valid justification does not automatically amount to a breach of the Act, businesses are encouraged to remove or narrow property controls that can’t be meaningfully defended.
What this means for franchise systems
For prospective franchisees, the amendments introduce additional risk. Exclusivity provisions relied on when evaluating a location and committing capital could be challenged or deemed unenforceable. Lease or franchise agreement provisions may also expose franchisees to regulatory risk, including indemnities shifting liability to the tenant.
The absence of settled case law adds to this uncertainty. Franchisors are navigating how exclusivity mechanisms will be assessed under the amended framework, and that uncertainty flows directly to franchisees making investment decisions. Both franchisors and franchisees should approach exclusivity with the understanding that system level restrictions may be reassessed, and that agreements should be structured to avoid leaving individual franchisees bearing the consequences of broader system practices.
Paola Ramirez
Partner, McMillan LLP
Talya Shulman
Associate, McMillan LLP
Hannah Johnson[7]
Associate, McMillan
[1] Competition Bureau Canada, “Competition Bureau advances investigations into Sobeys and Loblaw’s use of property controls” (June 11, 2024), Government of Canada, online: <Competition Bureau advances investigations into Sobeys and Loblaw’s use of property controls – Canada.ca>; Competition Bureau Canada, “Competition Bureau takes action to protect competition in the grocery industry in an Alberta community” (January 16, 2025), Government of Canada, online: <Competition Bureau takes action to protect competition in the grocery industry in an Alberta community – Canada.ca>.
[2] Competition Act, RSC 1985, c C-34, ss 78 and 79 [Competition Act]; Abuse of Dominance provisions.
[3] Competition Bureau Canada, “Competitor property controls and the Competition Act” (June 4, 2025), Government of Canada, online: https://competition-bureau.canada.ca/en/how-we-foster-competition/education-and-outreach/publications/competitor-property-controls-and-competition-act
[4] Competition Bureau Canada, “Canada Needs More Grocery Competition, Competition Bureau Retail Grocery Market Study Report” (June 27, 2023), Government of Canada, page 29, online: <CB-Retail-Grocery-Market-Study-Report-EN-2023-06-23.pdf>
[5] Competition Bureau Canada, “Competition Bureau advances investigations into Sobeys and Loblaw’s use of property controls” (June 11, 2024), Government of Canada, online: <Competition Bureau advances investigations into Sobeys and Loblaw’s use of property controls – Canada.ca>
[6] Competition Bureau Canada, “Competition Bureau takes action to protect competition in the grocery industry in an Alberta community” (January 16, 2025), Government of Canada, online: <Competition Bureau takes action to protect competition in the grocery industry in an Alberta community – Canada.ca>.
[7] With assistance from Articling Student, Makaila Kelly